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PATAGONIA: SOCIAL GOOD AND PROFIT

Patagonia's bright blues, reds, and purples are often spotted on adventurers shooting

white water rapids, climbing mountains, whizzing down ski slopes, or occasionally just lying

around—anywhere in the world. Patagonia is a study in contrasts—it succeeds even though

it tries to discourage consumption; it sells millions of items even though it's goods are

higher-priced, and it focuses on profits even though it's a leader among socially responsible

business firms. Where did such a firm come from, and in what sort of economic soil does it

grow?

A young Californian, named Yvon Chouinard founded Patagonia in 1957 to sell his

handmade mountain climbing equipment. Sales grew slowly until 1972, when Chouinard

decided to include clothing—rugby shirts and canvas shorts—in his small outdoor equipment

catalog. To move these products, he offered a money-back guarantee, which was feasible

only because he sold high-quality, high-priced, and durable products. As sales grew,

Chouinard began to introduce newer, more innovative fabrics and designs, making products

such as foamback raingear, pile and bunting outerwear, and polypropylene underwear.

Patagonia's strategy has been to compete on innovation rather than on cost. The company

is known not for low prices, but for developing new materials and designs.

The 1980s provided the perfect growth environment for Patagonia. Consumers

wanted quality. They had discovered adventure travel. Style, individualism, and image were

“in.” Magazine articles celebrated Chouinard's idea of work—spending six to eight months a

year hiking, fishing, climbing, and surfing to “test” his new designs and develop new product

ideas. As a “fun hog,” he was devoted to any non-motorized, outdoor activity. And as

“Patagonia's outside man,” he was able to gauge the durability, comfort, and usefulness of

the outdoor gear he sold.

Concern for the environment sets Patagonia apart from other catalogers and clothing

manufacturers. For example, as early as 1972, Chouinard abandoned production of

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traditional mountain climbing pitons in favor of chocks that could be inserted into cracks in a

rock face, leaving no holes or other damage. Other climbers willingly followed Chouinard's

lead by switching to the more environmentally responsible chocks. To emphasize its

continuing commitment, Patagonia adopted a mission statement that says all life on earth is

facing a critical time and we must all make decisions in the context of this environmental

crisis.

How can a firm like Patagonia make decisions with positive environmental effects?

Patagonia practices what it preaches by tracing the environmental impact of its products

and then identifying changes it can make to reduce this impact. In 1991, Patagonia began a

comprehensive Environmental Review Process to examine all the methods and materials

used to produce the company’s clothing. The study showed there were parts of the clothing

process the company had the power to change and other parts it could not change.

Take nylon and polyester. Patagonia management realized it couldn't have much

impact on the oil extraction and refinement processes used in manufacturing these

materials. But it could develop recycling options. With the help of two vendors, Patagonia

introduced PCR (post consumer recycled) Synchilla fleece—made from recycled soft drink

bottles. The fleece is warm and cozy, and it dries quickly, looks great, and consumes about

25 bottles per jacket.

With cotton, Patagonia realized that it could have a significant impact on production

of the raw material. How? By shifting to organic cotton. Today's standard method of

producing cotton uses 811 million pounds of pesticides and an additional 4 pounds of

chemicals per acre. Some of this spills into rivers, killing fish, and some is inhaled by

farmers or anyone else nearby. Pesticide use is growing: it has increased 150 percent since

1962. After reviewing these facts, Patagonia switched to organic cotton in 1996. Although

initially there were problems with pilling and shredding of cuffs and ribbing, Patagonia stuck

with its decision until it solved the problems.

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Although the introduction of PCR Synchilla and organic cotton products has been

successful, other moves by Patagonia have not worked as well. In the late 1980s, Patagonia

introduced buttons made from resins produced by the tagua nut, which grows in Brazilian

rainforests. Unfortunately, these nuts crack open and germinate during periods of intense

rain and heat, actions that are desirable in the rain forest but not in your washer and dryer.

When the buttons cracked and customers returned garments by the thousands, Patagonia

learned a major lesson. Do your homework—follow the materials throughout their life cycles

and subject them to rigorous tests. Otherwise, money-back and replacement guarantees

will leave you sewing on tens of thousands of replacement buttons.

What has the introduction of PCR Synchilla and organic cotton meant to consumers?

Mostly higher prices: both materials cost more. Prices for these products are about 25

percent higher than prices for competing products, and the garments are not visibly

different or better. So the next step in the Patagonia strategy is to communicate to

consumers why they should buy these more expensive goods, Patagonia pushes this story

aggressively.

In the spring of 1991, the Patagonia catalog began with “Everything we make

pollutes”—no shying away from the issues by this company! In a long essay, Patagonia

pointed out that all clothing production has a negative impact on the environment. With

each additional catalog, it has announced and explained actions by the company aimed at

reducing that environmental impact. In addition to using PCR Synchilla and organic cotton,

Patagonia has taken many other steps. To encourage reduced clothing consumption, the

company has purged 30 percent of its clothing lines and reduced the number of styles it

offers (for example, it sells only two styles of ski pants). It has also eliminated the use of

mailing lists, cut back on advertising, reduced the size of its catalog, and limited the number

of catalogs produced each year. The company’s clothing is multifunctional-such as jackets

that can be used for skiing, hiking, and kayaking, and that have no extra buttons, zippers, or
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frills. It uses less harsh dyes and no formaldehyde. All these actions affect consumers

directly.

Less apparent to consumers is Patagonia's environmental grant program. Each year

since 1985, the company has given away 10 percent of its pretax profits—usually in small

amounts of from $1000 to $3000—to less-well-known environmental groups. Today, it

donates 1 percent of sales or 10 percent of pretax profit, whichever is greater. To date, the

company has given away more than $8 million, along with free goods that organizations can

sell or auction off to raise funds.

Other environmentally responsible actions include major recycling programs with

suppliers and the construction of a 170,000 square foot distribution center in Reno, Nevada

that uses innovative heating and cooling technology. To cope with Reno's hot summers and

cold winters, the building is cooled by a nighttime system which admits cool air through roof

vents and a radiant-heating system that uses 30 percent less energy than conventional

heating. Solar-tracking skylights increase the level of natural light. Occupancy sensors dim

lights when people leave an area and increase brightness as daylight fades. The results

have been twofold. First, energy consumption and costs are down. Second, improved

materials handling and picking equipment in this building has produced nearly 100 percent

shipment accuracy and 24 hour turnaround on mail orders. The lower energy costs and

fewer returns help Patagonia absorb some of the additional cost of the organic cotton it

uses.

Even with all these efforts, Patagonia admits that it still uses some materials that are

environmentally destructive, such as polyester buttons and zippers and synthetic dyes.

Why? Because the alternative products cannot meet Patagonia's high quality standards.

Although the company has gone further toward environmental sustainability than most other

firms, it willingly admits it still has a long way to go.

In thinking about the future, Patagonia’s management believes that sustainable

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business necessitates changes in thinking by two groups. First, shareholders must expand

their definition of value to include environmental considerations. Patagonia’s cotton

products are an example. They had to be more than good looking, long lasting, and well

performing—they also had to contribute to the quality of life. Shareholders will have to look

at more than the bottom line. They will have to recognize that true value includes a long-

term plan for environmental quality and sustainability. Second, the public's perception of

value will have to change. Consumers will have to demand that companies pay closer

attention to the effects of their operations on the world around us. This requires consumer

education and activism. Consumers are frequently unaware of the contents of their

garments—what the buttons, zippers, and pull tabs are made of and what dyes and coatings

are used on the fabrics. Without such information, the best intentioned consumers can do

little about the environmental impact of the garments they buy. To remedy this, Patagonia

engages consumers in a continuing dialogue. Besides information placed on its garment

tags, Patagonia uses its Web site (www.patagonia.com) and encourages its managers to give

speeches informing consumers.

Patagonia does not take its eye off the profit picture completely. In an Inc. magazine

article, author Jim Collins interviewed Yvon Chouinard and found that Chouinard spent as

much time talking about the importance and mechanics of profit as about the need for social

change. Notes a previous Patagonia CEO, “The one thing I'm clear about is that Chouinard

demands 10 percent pretax profit.” Collins concludes, “Patagonia might be a social vehicle,

but it runs on an economic engine. It's not a question of social good or business profit, but

social good and business profit.”

Sources: “Can Slower Growth Save the World?” Business and Society Review, Spring 1993, pp.
10-20; Staci Bonner, “Patagonia: A Green Endeavor,” Apparel Industry Magazine, February
1997, pp. 46-8; Jim Collins, “The Foundation for Doing Good,” INC., December 1997, pp. 41-2;
Fleming Meeks, “The Man is the Message”, Forbes, April 17, 1989, pp. 148-152; Gary Forger,
“New Warehouse Doubles Productivity for Patagonia,” Modern Material Handling, June 1997, pp.
34-6; Edward O. Welles, “Lost in Patagonia”, INC., August 1992, pp. 44-57; Jil Zilligen,
“Ecological Sustainability,” speech given at the Academy of Management Conference, August,
1996, Cincinnati, Ohio; and Jacquelyn Ottman, “Proven Environmental Commitment helps
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Create Committed Customers,” Marketing News,